Everyone's a Cost Cutter

Mike Hofman was previously editor of Inc.com and a deputy editor at Inc. magazine, which he joined in 1996. The site was nominated for a National Magazine Award for Digital Media in 2010, and was named the best business website by Folio Magazine. In 2006, Hofman was part of a team of writers nominated for a Webby Award for best business blog. He lives in New York City.

How do you make a complex business strategy relevant to your small business? That was the challenge faced by Steve and Diane Warren, co-owners of Katzinger's Delicatessen, a $2 million deli in Columbus, Ohio. In 1995 the two attended a seminar on open-book management, a strategy that involves teaching employees about a company's financials and sharing the rewards with them when the company's performance improves. Sounds good, right? It's actually hard to do effectively, the Warrens found. Steve Warren shared the company's financials with managers as soon as he got back to the deli, yet food costs--which he wanted to keep below 35% of sales--continued to grow.

It was then that he realized he would have to tinker with the typical open-book strategy. "The restaurant business is kind of different," he says. "Some of our workers are young kids who aren't that responsible because they don't have a mortgage to pay. Plus, turnover is pretty high." The Warrens decided they would have to focus not on the company's big financial picture but on a short-term, simple goal that could energize a young, mobile workforce.

So in August 1996 the Warrens proposed a simple game: help us reduce food costs, they told their employees, and we'll split the savings with you. The only two rules: Don't sacrifice food quality or portion size, and make sure that customers get the service they require. It worked. "Our costs got in line immediately, and consistency improved," Steve Warren says. At the end of a year, Katzinger's had indeed reduced its food costs to below 35% of sales--saving $30,000 in the process. Steve and Diane Warren happily distributed $15,000 of that to their 45-member staff and are now cooking up a new game. Its goal? To increase sales.